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Maintaining Financial

Records
June 2013

Time allowed: 2 hours

ALL 50 questions are compulsory and MUST be attempted.

Do NOT open this paper until instructed by the supervisor.

This question paper must not be removed from the examination


hall.

Kaplan Publishing/Kaplan Financial

Paper FA2

FIA FINAL ASSESSMENT

FIA : FA2 MAINTAINING FINANCIAL RECORDS

Kaplan Financial Limited, 2013


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FINAL ASSESSMENT QUESTIONS

ALL 50 questions are compulsory and MUST be attempted.


Each question is worth 2 marks
1

The plant and equipment account in the records of a company for the year ended
31 December 20X6 is shown below:
Plant and equipment cost
Balance b/f
1 July Cash

$
960,000
48,000

$
30 Sept Disposals
Balance c/f

84,000
924,000

1,008,000

1,008,000

The companys policy is to charge straight line depreciation at 20% per year on a pro
rata basis.
What should be the charge for depreciation in the companys income statement for
the year ended 31 December 20X6?

$184,800

$192,600

$191,400

$184,200

During the year ended 31 March 2007, Jake recorded a sales return of $563 in the
sales returns day book as $635.
What is the journal entry required to correct this error?
Debit

Credit

Sales ledger control

$72

Sales returns

$72

Sales returns

$72

Sales ledger control

$72

Suspense

$72

Sales returns

$72

Sales ledger control

$72

Suspense

$72

IAS 2 states that inventory should be valued at the lower of cost and net realisable
value.
Which of the following concepts is this in accordance with?
A

Accruals

Prudence

Consistency

Going Concern

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

Annas business has rented out premises at a cost of $12,000 per annum. However,
on 1 July 2006 the rent was increased by 10%. At 1 January 2006 Anna had a prepaid
expense of $750 in respect of rent, and during the year ended 31 December 2006
Anna had paid a total of $12,850 to her landlord.
What amounts will appear in the income statement for the year ended 31 December
2006, and in the statement of financial position as at 31 December 2006 in respect of
rent?

Income statement

Statement of financial position

$12,600

$1,000 prepayment

$12,600

$1,000 accrual

$13,200

$400 prepayment

$13,200

$400 accrual

The trial balance totals of Gamma at 30 September 20X3 are:


Debit

$992,640

Credit

$1,026,480

Which TWO of the following possible errors could, when corrected, cause a trial
balance to agree?

(1)

An item for payment of rent $6,160 has not been entered into the rent payable
account or the cash book.

(2)

The balance on the motor expenses account $27,680 has been incorrectly listed
in the trial balance as credit.

(3)

$6,160 proceeds of sale of a motor vehicle have been posted to the debit of
motor vehicles asset account.

(4)

The balance of $21,520 on the rent receivable account has been omitted from
the trial balance.

(1) and (2)

(2) and (3)

(2) and (4)

(3) and (4)

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FINAL ASSESSMENT QUESTIONS

Lucas and Michael are in partnership. During the year ended 30 June 2007, the
partnership made a profit of $100,000. The partnership agreement stated that
profits were to be shared in the ratio of 2:1 after Michael had received a salary of
$10,000 per annum. However, on 1 January 2007, it was decided to increase his
salary to $16,000 per annum but that the profit-sharing ratio should remain at 2:1.
What share of profits are Lucas and Michael entitled to for the year ended 30 June
2007?

Lucas

Michael

$58,000

$42,000

$50,000

$50,000

$42,000

$58,000

$60,000

$40,000

In the statement of financial position at 31 December 20X5, Boris reported net


receivables of $12,000. During 20X6 he made sales on credit of $125,000 and
received cash from credit customers amounting to $115,500. At 31 December 20X6,
Boris wished to write off debts of $7,100 and increase the allowance for receivables
by $950 to $2,100. What is the net receivables figure at 31 December 20X6?
A

$12,300

$13,450

$14,400

$15,550

For the following transactions, what is the effect on the net profit for the period,
and what double entry is needed to correct the error? An amount of $310 was
received from a credit customer with a balance outstanding of $325. No entry has
been made for the remaining $15, and it has now been decided to treat it as a cash
discount.

Profit effect

Correction

Reduce by $15

Dr Discounts allowed $15


Cr Receivables $15

Reduce by $15

Dr Discounts received $15


Cr Receivables $15

Reduce by $15

Dr Discounts allowed $15


Cr Suspense $15

No effect

Dr Sales $15
Cr Discounts received $15

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

Dcor sells all their goods at a mark-up of 15%. During the year ended 31 December
2007, the company made sales of $546,250. At 1 January 2007, the company had
inventory valued at $75,000 and had made purchases during the year of $485,500.
What was the value of Dcors closing inventory at 31 December 2007?

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$64,500

$75,000

$85,500

$95,000

The following bank reconciliation statement has been prepared by a trainee


account:
Bank reconciliation 30 September 20X2
Balance as per bank statement (overdrawn)
Add: Lodgements created after date

Less:

Outstanding cheques

Balance per cash book (credit)

$
36,840
51,240

88,080
43,620

44,460

Assuming the amounts stated for items other than the cash book balance are correct,
what should the cash book balance be?

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$44,460 credit as stated

$60,020 credit

$29,220 debit

$29,220 credit

Which of the following statements about bank reconciliation are correct?


(1)

A difference between the cash book and the statement must be corrected by
means of a journal entry.

(2)

In preparing a bank reconciliation, lodgements recorded before date in the cash


book but credited by the bank after date should reduce an overdrawn balance
in the bank statement.

(3)

Bank charges not yet entered in the cash book should be dealt with by an
adjustment in the bank reconciliation.

(4)

If a cheque received from a customer is dishonoured after date, a credit entry in


the cash book is required.

(2) and (4)

(1) and (4)

(2) and (3)

(1) and (3)

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FINAL ASSESSMENT QUESTIONS

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At 1 April 2006, Tom had a payables' balance of $ 30,000. During the year ended
31 March 2007, Tom paid cheques amounting to $60,000 to his suppliers. He also
received prompt payment discounts totalling $3,000, and returned goods to
suppliers totalling $1,000. At 31 March 2007, Tom owed $20,000 to his suppliers.
What were Toms purchases in the year ended 31 March 2007?

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$54,000

$48,000

$46,000

$50,020

If a company erroneously excludes goods bought on credit from its closing inventory
and also fails to record the purchase of those goods on credit in its accounting
records, the effect would be to understate:
A

Cost of sales

Gross profit

Current assets

Working capital

A receivables ledger control account at May had balances of $32,750 debit and
$1,275 credit. During May, sales of $125,000 were made on credit.
Receipts from customers amounted to $122,500 and cash discounts of $550 were
allowed. Refunds of $1,300 were made to customers. What should the closing balance
at 31 May amount to?

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$35,175 debit and $3,000 credit

$36,675 debit and $2,500 credit

$36,725 debit and $2,000 credit

$36,725 debit and $1,000 credit

Karen and Jamie are in partnership running a training consultancy. In the year ended
30 September 20X6, the business made a profit of $180,000. The partnership
agreement states that Karen is to receive a salary of $25,000 and the remaining
profit is shared in the ratio 3:5. During the year, Karen took $20,000 in drawings and
Jamie $60,000. What amount should be credited to Karens current account for the
year?
A

$20,000

$58,125

$63,125

$83,125

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

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The bookkeeper of Kleenex made the following mistakes:

Discount allowed $3,840 was credited to discounts received account.

Discounts received $2,960 was debited to discounts allowed account.

Discounts were otherwise correctly recorded.

Which of the following journal entries will correct the errors?


Dr
$
A

Discount allowed

Cr
$

7,680

Discount received

5,920

Suspense account

1,760

Discount allowed

880

Discount received

880

Suspense
C

1,760

Discount allowed

6,800

Discount received
D

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6,800

Discount allowed

3,840

Discount received

2,960

Suspense account

880

The International Accounting Standards Board Framework for the Preparation and
Presentation of Financial Statements for financial reporting gives five qualitative
characteristics which make financial information reliable.
Which of the following lists comprises these five characteristics?

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Prudence, consistency, understandability, faithful representation, substance


over form

Accruals basis, going concern concept, consistency, prudence, true and fair view

Faithful representation, neutrality, substance over form, completeness,


consistency

Substance over
completeness

form,

prudence,

faithful

representation,

neutrality,

X and Y are in partnership, sharing profits equally with the exception of bad debts
which are borne 75% by X and 25% by Y. The business profit for the year ended
30 June 2005 was $576,000 after writing off bad debts totalling $10,000.
How is the profit for the year to be divided between X and Y?
X

$285,500

$290,500

$293,000

$293,000

$280,500

$295,500

$288,000

$288,000

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FINAL ASSESSMENT QUESTIONS

19

When reconciling the payables' ledger control account with the list of payables'
ledger balances, the following errors were found:

The purchase day book had been overstated by $500.

The personal ledger of a supplier had been understated by $400.

What adjustments must be made to correct these errors?

20

Control account

List of payables balances

$500 Cr

Decrease by $400

$500 Dr

Increase by $400

$400 Dr

Increase by $500

$400 Cr

Decrease by $500

A suspense account was opened when a trial balance failed to agree. The following
errors were later discovered:
Error
1

A gas bill of $420 had been recorded in the Gas account as $240.

Discount of $50 given to a customer had been credited to Discounts Received.

Interest received of $70 had been entered in the bank account only.

The original balance on the suspense account was:

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debit $210

credit $210

debit $160

credit $160

At 1 April 2006, Marcuss accounting records showed non-current assets that had
cost $156,000 and an accumulated depreciation of $33,000. During the year ended
31 March 2007, Marcus disposed of non-current assets which had originally cost
$14,000 and had a net book value of $5,600 at 1 April 2006.
Marcuss policy is to charge depreciation at 40% per annum on the reducing-balance
basis, with no depreciation charged in the year of disposal of an asset.
What is Marcuss depreciation charge for the year ended 31 March 2007?
A

$56,800

$49,200

$46,960

$43,600

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

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The profit of a business may be calculated by using which one of the following
formulae?
A

Opening capital Drawings + Capital introduced Closing capital

Closing capital + Drawings Capital introduced Opening capital

Opening capital + Drawings Capital introduced Opening capital

Closing capital Drawings + Capital introduced Opening capital

A company receives rent from a large number of properties. The total received in
the year ended 31 October 20X2 was $481,200.
The following were the amounts of rent in advance and in arrears at 31 October 20X1
and 20X2:
31 October 20X1

31 October 20X2

Rent received in advance

28,700

31,200

Rent in arrears (all subsequently received)

21,200

18,400

What amount of rental income should appear in the companys income statement for
the year ended 31 October 20X2?

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$486,500

$460,900

$501,500

$475,900

At 1 April 2006, Georgina had net assets of $50,000. At 31 March 2007, she had net
assets of $75,000. During the year ended 31 March 2007, Georgina withdrew $5,000
cash from the business and took $250 of goods for her personal use.
What profit was made by Georginas business in the year ended 31 March 2007?

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$19,750

$20,000

$30,000

$30,250

At 30 September 2007, Adele has a receivables' balance of $75,000 and an opening


allowance for receivables of $4,750. Following a review of receivables, Adele wishes
to write off bad debts totalling $2,000 and wishes to maintain the allowance for
receivables at 8% of the adjusted receivables.
What is the charge to the income statement in respect of bad and doubtful debts?

10

$1,090

$2,000

$3,090

$6,750

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FINAL ASSESSMENT QUESTIONS

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At 30 April 2007, Foxglove, a limited liability company, was being sued by an exemployee for wrongful dismissal. Foxglove has been advised that the claim is more
than 50% likely to succeed, and that damages of $100,000 will be payable if the
claim does succeed.
How should this matter be treated in the financial statements of Foxglove for the year
ended 30 April 2007?

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The matter should be ignored

The matter should be disclosed by note

A provision should be made for $50,000

A provision should be made for $100,000

Which of the following defines an asset?


A

An item owned by an entity that will lead to future economic benefits

A physical item that can be sold

An item controlled by an entity that will lead to future economic benefits

An item that can be converted into cash

On 1 January 2007, a business sells a van which it bought on 1 January 2004 for
$6,000 and has depreciated each year at 25% pa by the straight-line method. It
trades in this van for a new one costing $10,000 and pays the supplier $9,200 by
cheque.
What is the profit or loss on the disposal of the old van?

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$700 loss

$800 profit

$1,500 profit

$1,500 loss

The following extracts are taken from the trial balance of Charlies business at
31 December 2007:
Receivables

$36,800

Allowance for receivables

$1,460

On checking the accounts it was found that a bad debt of $570 had not been written
off and a bad debt recovered of $240 had not yet been entered in the books.
Charlie wishes to carry forward an allowance of 6% of receivables. What is the charge
or credit to the income statement in respect of bad and doubtful debts?
A

Charge of $1,354

Charge of $1,044

Charge of $804

Credit of $384

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

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31

The capital of a business would change as a result of:


A

a supplier being paid by cheque

raw materials being purchased on credit

non-current assets being purchased on credit

wages being paid in cash

A business compiling its financial statements for the year to 31 July each year pays
rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The
annual rent was increased from $60,000 per year to $72,000 per year as from
1 October 20X3.
What figure should appear for rent expense in the business income statement for the
year ended 31 July 20X4?

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$69,000

$62,000

$70,000

$63,000

The following information is available about Andrews business at 30 September


20X6:
Motor van
Loan (repayable in 4 equal annual instalments starting 1 January 20X7)
Receivables
Bank balance (a debit on the bank statement)
Provision for depreciation
Payables
Inventory
Petty cash
Rent due
Allowance for receivables

$
14,000
100,000
23,800
3,250
7,000
31,050
12,560
150
1,200
1,500

What are the correct figures for current liabilities and current assets?
Current liabilities
$

12

Current assets
$

34,300

35,010

32,250

38,260

57,250

38,260

60,500

35,010

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FINAL ASSESSMENT QUESTIONS

33

During 20X4, Tom Jones, paid a total of $60,000 for rent, covering the period from
1 October 20X3 to 31 March 20X5.
What figures should appear in the companys financial statements for 31 December
20X4?

34

Income statement

Statement of financial position

$40,000

Prepayments $10,000

$40,000

Prepayments $15,000

$50,000

Accrual $10,000

$50,000

Accrual $15,000

D gives a cash discount of $40 to a customer. The discount is credited to the


discounts allowed account.
The effect of recording the discount in this way is that profit will be:

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Correct

Overstated by $80

Understated by $80

Understated by $40

The double-entry system of book-keeping normally results in which of the following


balances on the ledger accounts?
Debit balances:

Credit balances:

Assets and revenues

Liabilities, capital and expenses

Revenues, capital and liabilities

Assets and expenses

Assets and expenses

Liabilities, capital and revenues

Assets, expenses and capital

Liabilities and revenues

The most important reason for producing a trial balance prior to preparing the final
accounts is:
A

it confirms the accuracy of the ledger accounts

it provides all the figures necessary to prepare the final accounts

it shows that the ledger accounts contain debit and credit entries of an equal
value

it enables the accountant to calculate any adjustments required

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

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38

An item of inventory was purchased for $500. It is expected to be sold for $1,200
although $250 will need to be spent on it in order to achieve the sale. To replace the
same item of inventory would cost $650. How should the inventory be valued in the
accounts?
A

$500

$750

$950

$650

In the quarter ended 31 March 20X2, Chas had taxable sales, net of sales tax, of
$90,000 and taxable purchases, net of sales tax, of $72,000.
If the rate of sales tax is 10%, how much sales tax is due?

39

40

41

14

$1,800 receivable

$2,000 receivable

$1,800 payable

$2,000 payable

Which of the following items appear on the same side of the trial balance?
A

Drawings and accruals

Costs of deliveries outwards and prepayments

Costs of deliveries inwards and rental income

Opening inventory and purchase returns

Recording the purchase of computer stationery by debiting the computer equipment


account at cost will result in:
A

An overstatement of profit and an overstatement of non-current assets

An understatement of profit and an overstatement of non-current assets

An overstatement of profit and n understatement of non-current assets

An understatement of profit and an understatement of non-current assets

Stock should be valued at the lower of costs and net realisable value. Which one of
the following accounting concepts governs this?
A

Consistency concept

Accruals concept

Prudence concept

Money measurement concept

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FINAL ASSESSMENT QUESTIONS

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44

Which of the following best explains the imprest system of petty cash control?
A

Weekly expenditure cannot exceed a set amount

The exact amount of expenditure

All expenditure out of the petty cash must be properly authorised

Regular equal amounts of cash are transferred into the petty cash at intervals

Which one of the following is a book of prime entry AND part of the double entry
system?
A

The journal

The petty cash book

The sales journal

The purchase ledger

Which, if any, of the following journal entries is correct according to their


narratives?
Dr

(1)

Sales ledger account

Cr

450

Bad debts account

450

Irrecoverable balance written off


(2)

Investments: Q ordinary shares

100,000

Share capital

100,000

80,000 shares of 50p each issued at 1.25 in exchange for shares in Q


(3)

Suspense account
Motor vehicle

1,000
1,000

Correction of error-debit side of motor vehicles account undercast by 1,000


A

None of them

(1) only

(2) only

(3) only

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

45

Alpha received a statement of account from a supplier Beta, showing a balance to


be paid of 8,950. Alphas purchase ledger account for Beta shows a balance due to
Beta of 4,410.
Investigation reveals the following:
(1)

Cash paid to Beta 4,080 has not been allowed for by Beta.

(2)

Alphas ledger account has not been adjusted for 40 of cash discount allowed
by Beta.

(3)

Goods returned by Alpha 380 have not been recorded by Beta.

What discrepancy remains between Alphas and Betas records after allowing for
these items:

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47

9,310

390

310

1,070

Which of the following items could appear on the credit side of a sales ledger control
account?
(1)

Cash received from customers

(2)

Bad debts written off

(3)

Increase in allowance for doubtful debts

(4)

Discount allowed

(5)

Sales

(6)

Credits for goods returned by customers

(7)

Cash refunds to customers

(1), (2), (4) and (6)

(1), (2), (4) and (7)

(3), (4), (5) and (6)

(5) and (7)

After the profit and loss account of GH had been prepared, it was found that
accrued expenses of 2,500 had been omitted from one of the expenses accounts
and that closing stock had been under-valued by 1,500.
The effect of these errors is:

16

An overstatement of net profit by 1,000

An overstatement of net profit by 4,000

An understatement of net profit by 1,000

An understatement of net profit by 4,000

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FINAL ASSESSMENT QUESTIONS

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49

Which of the following will not cause an entry to be made in a suspense account?
A

Drawings shown on the credit side of the trial balance

Discounts allowed shown on the debit side of the trial balance

Omission of bad debts written off from the trial balance

The entry of cash in hand (1,680) on the trial balance as 1,860

Erics business makes all sales at a gross profit margin of 20%.


What is Erics gross profit mark-up?

50

25%

20%

16.7%

15%

Rowlings year-end is 30 June 2006. In August 2006, a major credit customer went
into liquidation and the directors believe they will not be able to recover the
$500,000 owed to them.
How should this item be treated in the financial statements for the year ended
30 June 2006?
A

The bad debt should be disclosed by note

The financial statements are not affected

The debt should be provided against

The financial statements should be adjusted to reflect the bad debt

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FIA : FA2 MAINTAINING FINANCIAL RECORDS

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